There is so much ideological, quasi-religious fanaticism around
"free trade" (there is no such thing as "free trade," there are only various permutations
of managed trade) and "industrial policy" (every nation has one, explicit or
implicit) that it is difficult to make any sense of the many intertwined issues.

Ideological purity is not a substitute for knowledge, any more than a superficial admiration of machines
equals actually knowing how to assemble, maintain and repair them.

As a background context, we might start by noting that Marx outlined how finance capital
comes to dominate industrial capital, as industry comes to depend on the credit extended
by the banks/finance capital.

The key takeaway: if you don't control the banks, then they will end up dominating
industrial capital. In the U.S., we have the worst of both worlds: a dominant financial
Elite and various cartels (military-industrial, sickcare, agribusiness, etc.)
that have captured what little of the Central
State that isn't already beholden to financial capital.

Moving production around the world to exploit cheap labor--also knowns as "wage arbitrage"--
is not free trade: it is merely the consequence of free capital flows, and an extension
of capital's dominance of labor. If capital can reap higher returns by flowing elsewhere
and abandoning domestic labor, then it will do so, and "lowering the cost to consumers"
is the marketing propaganda issued to placate the captive home markets.

Consumers, after all, are not free to travel the globe seeking "higher returns,"
i.e. lower prices--that privilege is reserved for capital.

When China sold silk to the Roman Empire in 100 C.E., the cost of capital to produce the silk
and the cost of labor was set in China. Traders took the risks of transport and reaped the gigantic
profits. The same was true when China sold porcelain made for export to America in the 1800s.

That is "free trade." Moving capital to China to exploit cheap labor there, then closing
the factory and moving production to Vietnam, and so on, is simply free-flowing capital
exploiting labor on a global scale.

As further context, we should note the dominance of short-term profiteering as the
motivator of management in Corporate America. "Beating quarterly estimates" is basically the only metric
of "success" in America, because a corporate management that fails to "beat estimates"
won't last long enough to pursue any long-term capital investments.

The financialization of compensation is also a critical factor: if compensation is
mostly stock options, then that creates a huge incentive to boost the stock price and then
exercise the options--"pump and dump" on a vast, systemic scale.

This obsessive addiction to boosting short-term profits also leads management to view
labor as the "enemy" which is sucking off profits, rather than the partner in the company's
long-term success. Thus relentless cost-cutting and downsizing is heavily incentivized
as the one sure way to boost short-term profits, even as the company is being hollowed out.

Management isn't being rewarded to think about the long-term, any more than a member of
the House of Representatives is rewarded for thinking ahead more than two years.
Some problems cannot be solved, or even addressed, in short-term thinking. This is one
reason why the nation is heading to heck in a handbasket--nothing can be discussed that
can't be "resolved" in 18 months (the election cycle starts six months before every congressional
election). Management might only last 18 months, so there is every reason to stripmine
the company of assets and know-how, boost the stock price, cash in the millions of dollars
in options and hightail it on to the next "opportunity."

An emphasis on housing as a bedrock of wealth and lending has completely distorted
the U.S. economy. The incentives in real estate are massive, and massively perverse:
the unlimited mortgage deduction for interest incentivizes borrowing vast sums and
"moving up" to ever-larger, ever more wasteful homes, to name just two, and policies
aimed at expanding suburbs effectively gutted central cities while heaping subsidies
on sprawl and distant exurbs.

The U.S. has a distinct industrial policy: benign neglect, ignorance, favoritism
towards real estate development and financialization, and a fanatic devotion to short-term
profits and cost-cutting.

What makes any discussion of "free trade" so impossible is the vast ignorance of
free trade proponents about our industrial competitors and the history of trade.
If you know essentially nothing about industry and industrial policy in
China, Japan and Germany, and nothing
about the long history of trade in a capitalist framework, then exactly what are you
bringing to the discussion other than religious fanaticism to a concept that begs for
deep knowledge of other nations and nuanced understanding?

I have studied Japan and China for almost 40 years, both formally in university studies and via visits,
research and discussions with my many Japanese and Chinese friends. I have toured
many Chinese factories and discussed trade with entrepreneurs and marketing reps,
and received inside information from local government sources.

If you watched any Japanese television (NHK) after the tsunami and earthquake, and you
are a careful observer, you had a rare chance to see industrial Japan from the inside.
Japan, Inc, is not just a Toyota factory filled with industrial robots: it's thousands
of small factories producing parts for the global corporations.

For example, one factory affected by the tsunami manufactured special components for
satellites. The workers were shown hand-polishing the complex castings by hand.

Let me repeat that, for those who mistakenly think everything can be made by robots
or in some Chinese factory by low-skilled workers: by hand, by highly skilled workers.

Industrial robots are costly to buy and maintain; they make no sense on small production
runs, or highly skilled, complex tasks. No robot could duplicate the
delicate hand-eye coordination required to hand-polish these complex parts.

This is not some outlier, this is standard in Japan, Inc., and also in Germany, Inc.
There is a critical need within any broad-based industrial supply chain for skilled
labor.

As for automation: yes, it works in producing mass-produced goods, but skilled labor is
required to reprogram the robots, maintain them, assemble them, etc. Though the
factory floor may have few people present, there is a long supply chain behind the
automation that supports multiple levels of value-added labor and manufacturing.

It's not just moving the assembly offshore, it's moving the entire value-added chain
that feeds it.

As my friend G.F.B. recently noted, the initial invention that is the obsession of
America and supposedly its great advantage in the global marketplace leaves off the
real value-added proposition, which is the development of the later models and iterations.

Place the production elsewhere and keep the design staff in the home nation is an excellent
way to lose the design of the actual parts and workflow--the real value added.
Apple has been able to keep ahead of competitors by integrating software that is difficult
to copy into hardware, but it not the typical case, it is the outlier, hence its
outsized value.

As I repeatedly point out, Apple, Google, Facebook and Twitter together have relatively few
domestic employees. As production is overseas, then that's
where the design jobs go, too, eventually.

You have to understand the entire value chain, not just the assembly costs.

The U.S. culture denigrates skilled labor and glorifies the C.E.O. and innovator
as god-like heroes. Other nations, notably Germany, maintain a value and education
system which recognizes and nurtures technical skills. In the U.S., we fawn over social media
companies that generate billions in new wealth for Wall Street and a handful of
founders and venture capitalists, and drill into every student's head the value not
of tradecraft skills but of a four-year business degree.

For those not suited for an MBA--sorry, there are few other choices of learning.

In America, we are addicted to the drama of startling, big "innovations," and we are
enamoured with the romance of "instant wealth" from the "hot investment" of the moment.

Extraction is not the same as value-added production. There is temporary value in the
equipment set up, but once the resource has been depleted, the wealth is gone and the
"gold rush town" dries up and blows away.

The problem with financialization is that it is the gold rush dynamic on steroids.
To reap the big gains from financializing, you need ever-greater amounts of credit,
leverage, risk and churn--all the elements we saw in the housing bubble and in every
stock bubble.

Once the financialization bubble bursts, there is nothing left to extract or leverage.
Since productive investments were disincentivized at every turn, then the implosion of
the unproductive investments leaves a hollowed-out shell of an economy with a very
wealthy layer of managers and financial "winners" and the 90% below them with few prospects
in what amounts to a corporate-colonial economy ruled by financial oligarchies and their
minions in the Central State.

"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

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